Q&A-China car makers go west as rivals stumble

Fri Oct 30, 2009 6:36am EDT
By Gillian Murdoch

SINGAPORE, Oct 30 (Reuters) - Ford Motor Co. (F.N: Quote, Profile, Research, Stock Buzz) named the parent company of China's Geely Automobile Holdings (0175.HK: Quote, Profile, Research, Stock Buzz) as the preferred bidder for its Volvo car unit this week, paving the way for China's second possible acquisition of a major overseas automaker this year.

A dozen China-centred auto deals have been proposed this year, underlining the growing international clout of the world's largest and strongest car market.

Here are some questions and answers about how the shake-up in the global car market is playing out, and where it may be leading the auto industry.

LET ME GUESS: ALL ROADS LEAD TO CHINA?

The sole bright spot for automakers reeling from the demand-withering global financial crisis, high fuel prices and pressure to up fuel efficiency, China powered past the U.S. to become the world's largest car market earlier this year.

While industry-wide U.S. auto sales slipped 27 percent this year to levels last seen in the early 1980s, China's car sales are on track for a record year. September sales surged 84 percent from a year earlier. [ID:nN2873326] [ID:nSHA335461]

The recession-led sales slump that drove U.S auto factory closures and job losses in the traditional car making heartland of Detroit saw General Motors (GM) [GM.UL] and Chrysler -- two of its 'Big Three' automakers along with Ford Motor Co (F.N: Quote, Profile, Research, Stock Buzz) -- file for bankruptcy.

HAVEN'T STATE SUBSIDIES HELPED?

Results have been mixed.

Less than six months after the U.S. government extended an emergency $17.4 billion lifeline to the industry in December 2008, as part of the $700 billion Troubled Asset Relief Program (TARP), Chrysler went bust in April, and GM in June.

The summertime 'Cash for Clunkers' program, which offered credits of up to $4,500 on new cars purchased by consumers trading in older, less fuel-efficient cars, totted up nearly 700,000 sales, and around $2.87 billion in rebates.

Japanese and Korean carmakers emerged as main beneficiaries: Toyota Corolla was the top-selling model, with South Korea's Hyundai and Nissan the next most popular brands. Ford was the only U.S. manufacturer with top-selling models in the program. [ID:nN26266317]

In Japan, the world's third largest car market, demand fell so flat that government stimulus could not prevent shrinking sales that only broke a 13-month decline in September with a modest 0.2 percent rise.

While state incentives helped European carmakers stage a fragile recovery since June after a 14-month slump, the end to state subsidies now hangs over the market.

In Germany -- Europe's biggest car market, where August registrations leapt 28 percent -- a scheme that paid drivers 2,500 euros ($3,659) to scrap their old cars and buy new, greener models has now run out, whereas France has promised to keep its scheme going into 2011.

HOW DID CHINA'S AUTO FIRMS OUTPACE THE DOWNTURN?

With low per-capita car ownership fuelling optimism that the market is at the bottom of its growth curve, and GDP growth chugging along at around 8 percent all year, China's carmakers bucked the global gloom to reap strong growth forecasts.

The fast-developing local industry, and a multi-billion dollar government stimulus plan that includes tax incentives on some car models and subsidies for buyers in rural areas, have helped pave the way for an expected 10 million vehicle sales this year -- a massive 500 percent increase from 2000. [ID:nSHA165501]

The country's car market may grow 10 percent next year even without government incentives, and industry-wide car sales in 2010 may top 13 million, a senior General Motors [GM.UL] executive said earlier this month. [ID:nSEO350079]

CAN CHINESE FIRMS CUT IT ON A GLOBAL STAGE?

Geely's bid for Ford's Volvo may be among the first to go through of a rash of rescue-style China deals proposed this year.

GM and Ford have looked at offloading household names like Hummer and Opel to virtual unknowns in China to offset structural overcapacity that sees U.S companies attempting to shift millions of new cars every year. Tengzhong, the Chinese buyer of GM's Hummer aims to close the deal by early 2010.

Observers surprised by these first signs of success for such deals have more questions than answers about what China's rise to the global autos driving seat may mean as the industry remodels.

Analysts question not only whether China's automakers have the expertise to run global auto brands, but how far politicians who have fixed fuel efficiency as a core policy goal will attempt to shape and control China's 100 carmakers as the industry remodels.

Source: Reuters (Editing by Lincoln Feast)